New analysis from Grant Thornton UK has reported a slowdown in deal activity in the food and beverage sector during the first quarter of this year.
The professional services firm’s latest ‘food and beverage insights’ report found that 44 transactions were announced in Q1 2020, compared to 49 in the last quarter of 2019. This figure represents a drop of 15% from Q1 2019, when 52 transactions were announced.
While the publicly disclosed deal value for Q4 2019 was £3.8 billion, or £792 million when the Froneri/ Nestlé £3 billion mega-deal is excluded, this stood at £298.8 million for the first quarter of this year.
The company predicts that the slowdown is likely to continue during the remaining quarters of 2020, as they “bear the full impact of these unparalleled times”.
Trefor Griffith, head of food and beverage at Grant Thornton UK, said: “Whilst a decline in deal volume was inevitable in the first quarter of 2020, the decrease is perhaps less drastic than anticipated, since the majority of the period was operating in near enough normal circumstances.
“The arrival of Covid-19 has impacted M&A in all sectors and, in the food and beverage sector, the majority of processes are now on hold.”
During the rest of the year overall deal activity is expected to continue to take a backseat as “public companies are more likely to focus on cash conservation (as well as waiting for their share prices to mend), and private equity houses will be more focused on aiding their portfolio companies”.
The firm also looked at ‘distressed’ deal activity, which it says rose sharply in Q4 2019, with nine deals recorded wherein companies were acquired from administration.
This activity normalised in Q1 2020, which was otherwise characterised by a significant number of deals involving private equity (PE) investment, with a particular focus on growth capital provided to start-ups and early stage businesses.
However, Grant Thornton UK says that the level of distressed mergers and acquisitions will likely rise again through 2020 as a consequence of the impact of Covid-19.
This, combined with the resumption of deals currently on hold and potential clarity around trade agreements post-Brexit, could, says Griffith “lead to a surge in sector M&A next year”.
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